This paper is concerned with the impacts of strict patents in the pharmaceutical industry, focusing on the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement. It discusses the historical and current policy context, to better understand how strict patents affect the availability of essential drugs in developing countries.
The research shows that the pharmaceutical industry prioritises profit above health. Strict patents reduce the availability and affordability of new essential drugs in developing countries, and thereby have a negative impact on the health of the world’s poor. Larger pharmaceutical companies benefit more than smaller companies because they have a monopoly in the industry. They invest more in research and development and, linked to economies of scale, are better positioned to exploit markets for new drugs.
The example of India highlights the importance of generic production and essential drugs in developing countries. It shows that while TRIPs promotes economic growth of the industry and encourages investment in research and development of new drugs, it increases the prices of new essential drugs, thereby isolating benefits from the majority poor populations in developing countries.
The paper suggests that based on historical and current trade policy, developed countries have an ethical obligation to allow poorer countries to develop infrastructure for their pharmaceutical industry, a responsibility not being fulfilled. It suggests TRIPs be revised under a more ethical framework. This includes increasing public funding of research and development, shortening the length of patents and allowing developing countries to generically produce essential drugs.
The paper highlights the interconnectedness of social, economic and political factors that could increase the availability of essential drugs in developing countries. It highlights the importance of better understanding the issues surrounding strict patents, and why the scientific community is critical to this process, in terms raising awareness and collaborating with independent organisations and concerned citizens to ultimately press governments for change at the national and international level.
Table of Contents
1.1 What are Patent Laws?
1.2 What is TRIPs?
1.3 Focus and Structure of the Paper
2. Pharmaceutical Industry for Profit or for Improving Health?
2.1 Scale of Profits
2.2 Investment Priorities
3. Essential Drugs and Generic Production
4. Impacts of TRIPs
4.1 Main advantages
4.2 Main disadvantages
4.3 The Doha Agreement and Compulsory Licensing
‘As the ancient scourge of polio was rolled back by his vaccine 50 years ago, Jonas Salk, the inventor of the polio vaccine was asked why he never took a patent out on the medicine, a patent that would have made him wildly rich. “There is no patent,” he replied … “Could you patent the sun?”‘ (Salon.com magazine 2001).
This paper explores the impacts of pharmaceutical patents on drug availability in the third world, focusing on the impacts of the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement. It highlights the value of essential drugs and generic production in developing countries, using India as a case study. It also explores alternatives to TRIPs and the role of the scientific community.
1.1 What are patent laws?
A patent can be defined as ‘a monopoly right granted to person who has invented a new and useful article, an improvement of an existing article or a new process of making an article’. It consists of an exclusive right to manufacture the new invented article, or manufacture an article according to the invented process for a limited period. During the term of patent, the owner of the patent, i.e. the patentee can prevent any other person from using the potential invention .
Figure 1: Brief History of Patent Law
The timeline below illustrates the brief recent history of patents in the world .
Patent statutes introduced in most European countries
Paris Convention for the Protection of Industrial Property – cornerstone of the modern international patent system.
1947 International Patent Institute (IIB) established at the Hague
Patent Co-operation Treaty signed in Washington, D.C.
International Patent Institute integrated into the European Patent Office (EPO)
Bayh-Dole Act passed-granted permission to U.S. universities to license and profit from federally sponsored research*
International Patent Documentation Centre (INPADOC) integrated into the EPO
In the pharmaceutical industry patents have a straightforward objective. They provide a strong incentive for companies to invest in the research and development of new drugs, knowing that they will be able to recuperate costs and, subsequently, profit from the new drug. However, patents enable parent companies to control the price and availability of new drugs. There is no competition from other companies to produce the drug, which would usually lower the price. Thus, increasing the length of patents can reduce the availability of new essential new drugs in developing countries, with knock on health problems.
Essential drugs can be broadly defined as those that satisfy the health care needs of the majority of the population. They should, therefore, ideally be available at all times in adequate amounts; in the appropriate dosage forms; at reasonable (affordable) price; and, meeting the criteria of quality, safety and efficacy (New Strait Times 1998).
Under the term of a patent, drugs, essential or non-essential, can only be produced by the parent company. This means that there is no competition from other companies to produce the drug, and the parent company can charge a high price for the drug, effectively making the drug unavailable for poorer people.
New drugs tend to be more available to developed countries, because people are more affluent and can afford higher prices. For this reason, pharmaceutical companies tend to market their drugs at developed countries. Overall, developed countries benefit more from new technology and advances in science because their governments, companies, and people can afford to buy into the technology.
The World Trade Organisation’s (WTO) Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, which extends the length of patents, enables companies to significantly increase their profits and increase the technology gap between developed and developing countries.
1.2 What is TRIPs?
The Trade Related Aspects of Intellectual Property Rights (TRIPs) was added to the General Agreement on Tariffs and Trade (GATT) at the end of the Uruguay Round of trade negotiations in 1994. It came into full force in January 2005, and its inclusion by the World Trade Organisation (WTO) was the ‘culmination of a program of intense lobbying’ by the United States, supported by the EU, Japan and other developed countries .
The United States strategy of linking trade policy to intellectual property standards can be traced to senior management at Pfizer (a large United States pharmaceutical firm) in the early 1980s. Pfizer mobilised corporations and made maximising intellectual property privileges the number one priority of United States trade policy .
According to the WTO, ‘TRIPs is an attempt to strike a balance between the long term social objective of providing incentives for future inventions and creation, and the short term objective of allowing people to use existing inventions and creations’ .
The following requirements of TRIPs all have a bearing on the pharmaceutical use of patents .
? Copyright must be granted automatically, and not based upon any “formality”, such as registrations or systems of renewal.
? National exceptions to copyright (such as “fair use” in the United States) must be tightly constrained.
? Patents must be granted in all “fields of technology” (regardless of whether it is in the public interest to do so).
? Exceptions to patent law must be limited almost as strictly as those to copyright law. In each state, intellectual property laws may not offer any benefits to local citizens which are not available to citizens of other TRIPs signatories (this is called “national treatment”). TRIPs also has a most favoured nation clause.
? Patents in the pharmaceutical industry will apply for 20 years, instead of 10 to 15 years.
Some developing countries began to grant their own patent protection in the late 1980s, but TRIPs is a compulsory requirement for any country who wants to be a member of the World Trade Centre, and with that memberchip access to international markets and trade relationships. Countries which do not adopt TRIPs can be disciplined through the WTO’s dispute settlement mechanism, which is capable of authorising trade sanctions against dissident states . Therefore, the economic and poltical threats, which could cripple a poor economy, effectively forced developing countries to ratify the agreement.
The TRIPs agreement makes it easier to obtain and enforce patents. It increases the length of pharmaceutical patents, from 10 to 15 years to 20 years, which encourages companies to invest more in research and development and promotes economic growth. However, it favours developed countries, which have the capacity to enforce their rights globally, and create more exclusive trade options under the Intellectual Property Rights (IPRs). Developed countries have more pharmaceutical infrastructure and companies that are used to using patents to make profit.
1.3 Focus and structure of this paper
Chapter 1 introduced the main contentions of using strict patents in the pharmaceutical industry. It explained how patents work, and the main changes that TRIPs will make to the pharmaceutical industry.
Chapter 2 shows the monopoly of a handful of large pharmaceutical companies in the pharmaceutical industry. It provides a sense of the scale of the profits made by these companies, contrasting the investment priorities and types of drugs produced with those that are needed in developing countries. The Chapter debates whether the industry is for profit or health, briefly highlighting how companies make false claims through advertising in developing countries.
Chapter 3 introduces the idea of essential drugs and generic production, exploring the benefits with a case study of India. Chapter 4 shows how TRIPs will restrict generic production of essential drugs, and the impacts this will have on the majority poor populations in developing countries. The conclusion, Chapter 5, suggests how TRIPs could be revised under a more ethical framework, exploring the historical and current drug policy context, with particular emphasis on the role of scientists.
2. PHARMACEUTICAL INDUSTRY FOR PROFIT OR HEALTH?
In an attempt to understand how pharmaceutical companies control the availability of essential drugs, and use patents to make substantial profits, this chapter debates whether the pharmaceutical industry is for profit or health. It looks at the scale of profits made by the pharmaceutical industry and their investment priorities, also challenging whether ‘diffusion’ of biotechnology works to provide essential drugs to developing countries.
2.1 Scale of profits
There is a very familiar trend in the international pharmaceutical industry. A handful of multinational companies, originating from developed countries, have a great deal of economic power, which gives them control over drug availability and health. They also lobby governments to make trade policy which suits their profit making agenda. In 1996 the first ten multinational pharmaceutical companies accounted for approximately 36 per cent of the world pharmaceutical sales of US$ 251 billion .
Table 1: The World’s Top Ten Pharmaceutical Companies in 2003
Company Pharma Profit ($million) Pharma Sales ($ million) Pharma Operational Profit Margin
Pfizer 12,920.0 28,288.0 45.7%
Merck & Co. 10,213.6 21,631.0 47.2%
GlaxoSmithKline 7,598.2 26,979.0 28.2%
Johnson & Johnson 5,787.0 17,151.0 33.7%
AstraZeneca 4,006.0 17,841.0 22.5%
Novartis 3,857.3 13,497.4 28.6%
Wyeth 3,505.5 12,386.6 28.3%
Aventis 2,969.6 15,705.4 18.9%
Abbott 2,739.0 9,304.0 29.4%
Takeda 2,446.6 6,838.3 35.8%
Group Subtotal 56,042.9 169,621.8
Source: Adapted from Scrip Report 2003
The pharmaceutical sector racks up the largest legal profits of any industry, with an average 18.6 % return on revenues in 2001 (Resnik 2001).
However, Table 1 shows that the top ten companies achieved a much higher average profit margin of 31.8% in 2003. Thy have a monopoly over the industry. Linked to economies of scale, larger companies can exploit larger market penetration to increase their profits. For example, Pfizer and Merck & CO, two out of the top three pharmaceutical companies in 2003 according to gross sales, had a profit margin of 45.7% and 47.2% respectively. This was much higher than the average profit margin of the top ten companies (31.8%), which illustrates the …